Tatas and India

The underlying causes for the decision of Tata Sons Chairman N Chandrasekaran not to seek reappointment for a third term are not a conflict among personalities on the Tata Sons board, or a contest for control of the Tata group. The root causes are much deeper. They lie in the drift of the Tata group from the purpose for which it was established, and in a change in the substance of its businesses. 

 Mahatma Gandhi said that while he was fighting for India’s political freedom, Jamsetji Tata and his sons were building the foundations for India’s economic freedom. They were doing the hard work to build the hardware for Indian industry. The Tata Iron and Steel Company, founded in 1907, produced steel from domestically mined iron ore. It persisted through the many obstructions the British government put in its way. The Tatas promoted the Indian Institute of Science, which was established in Bangalore in 1909. The Tata Hydro Electric Power Company, founded in 1910, provided clean, renewable power to the textile industry in Bombay, which converted Indian cotton into fabrics for India’s people.  

 Tata Engineering and Locomotive Company (now Tata Motors), founded in 1945, provided wheels for the Indian economy. Initially it produced locomotives for India’s railways. It diversified in 1954 and became the country’s largest producer of trucks and buses, and, at one point, India’s largest exporter of manufactured goods. It also built a large base of indigenous producers of auto components, which provided a base for Maruti to manufacture cars on scale later. Indian auto component producers began exporting India-made parts to the United States and to European auto companies in the 1990s when global trade was liberalised.  

The purpose of the Tata group was to build Indian industries on solid foundations. Tata companies built for the long term. They built their own humanware. They trained their own skilled workers and groomed cadres of engineers, many of whom went on to provide managers for other public- and private-sector companies. Tata companies also built their own machines and equipment when there was no foreign exchange for imports. Tata’s leaders understood that manufacturing technology is embedded within the machines, dies, and tools required for production. They also understood that industrial research & development (R&D) lies within the design and development of production equipment for providing sustainable competitive advantages. 

 The necessity of owning and controlling the supply of hardware has become apparent to all investors and competitors in the artificial intelligence (AI) industry. The makers of advanced chips, and the makers of equipment for producing the chips, have the power to control the industry.    

The Tata group was founded and built as an industrial enterprise; not a financial empire. J R D Tata, chairman of the group from 1938 to 1991, said that whenever he had to make a difficult decision, he would ask himself, what will be good for India, and what will be good for the Tatas. If he had a doubt, he would decide in favour of India. In the long run, it would turn out well for the Tatas too, he said. Tata values came first, which included the needs of the country. Stock market valuations were always a subordinate consideration, albeit necessary. 

 The weakening of the Tata group’s industrial foundations began with the liberalisation of the Indian economy, along with the globalisation of financial markets, and the abandoning of industrial policy, in 1991. Moreover, with the growth of digital technology, the concept of technology itself became unmoored from hardware and manufacturing. More “technology” to solve any problem meant more digital technology. “Innovation” became new digital apps to provide faster services. The performance of “entrepreneurs” is measured by stock market valuations of their enterprises, and by how quickly they can become billionaires; rather than by what they do to uplift the lives of the poorest people.   

 India cannot rely any more on exporting Indian labour and talent,  and remittances from non-resident Indians, and exporting software services from India to balance its foreign trade. Indian products, made in India, and by Indians, are essential to balance trade and create employment in India. What India needs now are Indian industry builders, who build India, by building for India, and building in India. 

 India’s problems and the Tata group’s problems cannot be separated. The Tatas have been integral to India’s industrial history, and a part of Indians’ lives, for over one hundred years.  

Tata Trusts, which is a major investor in Tata Sons and relies on income from Tata Sons for its philanthropic work, is concerned about the uncertainty of its future income. Tata Sons is facing a financial crunch. Air India, the enterprise J R D Tata founded in 1932 in a different era, was re-acquired by the group from the government in 2022 to rescue it from its deep financial troubles, and improve the quality of its services. It is now draining Tata Sons’ resources, as are Tata Digital and Tata Neu, the new digital app. Moreover, Tata Consultancy Services, India’s largest exporter of software services, and Tata Sons’ cash cow, is flying into the turbulence in the software industry created by AI. These are ventures that Mr Chandrasekaran stewarded. Therefore, he was confronted by Tata Trusts.  

The board of Tata Sons must find a new chairman within a few months to replace Mr Chandrasekaran. The board must begin by asking itself some deeper questions.  

Is Tata Sons a philanthropic enterprise, an investment manager, or a builder of industry? How should it be governed now to fulfill the purpose of existence of the Tata group? Should the quality of Tata Sons’ governance be measured by stock market valuations, or adherence to Tata values of service to the nation and fairness to all stakeholders? What competencies does the board of Tata Sons require now to fulfill its purpose? Finally, what must be the experience and the competencies required of the chairman of Tata Sons? And what values will he or she be guided by?

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The writer is the author of The Learning Factory: How the Leaders of Tata Became Nation Builders and Reimagining India’s Economy: The Road to a More Equitable Society